Shares of Zee Entertainment Enterprises rebounded after falling 14 percent intraday on October 7 amid increase in promoters' total pledge to 90 percent along with loan liability of Rs 7,000 crore.
The stock has lost half of its value in the last one year. It was quoting at Rs 238.25, up Rs 1.45, or 0.61 percent, on the BSE at 1224 hours.
After the company's conference call with media and analysts, Motilal Oswal retained neutral stance (with a target price at Rs 265) on Zee despite its strong performance in the recent past, primarily due to three reasons.
The first is the risk of the promoter group losing management control as the current value of the shareholding stands at a meagre Rs 5,000 crore versus loan against pledged shares at Rs 6,500 crore (post 2.2 percent sale to Oppenheimer). This is important as Zee remains the only consistently profitable company in the broadcasting space spearheaded by the current promoter group.
Second, the value of the other non-media infra assets, too, is worsening, holding Rs 12,000-crore debt (as of January 2019) in the operating companies. This could only reduce the fund-raising possibility but also create further debt woes in the operating companies, the brokerage said.
The inline valuation compared to Sun TV is the third reason. "Peers like Sun TV, too, are valued at P/E of 12x on FY21E, in line with Zee's valuation of 11x on FY21E, and therefore, overall industry valuation has reduced making Zee less attractive compared to peers," Motilal Oswal explained.
Here are the highlights of Zee managing director Punit Goenka’s concall:
"Market is overlooking fundamentals and penalising company for promoters' pledge issue. At the current stock price, there isn't much to lose fundamentally, though we cut our multiple to 20x FY21e versus 25x earlier," the brokerage said.
It said VTB encumbrance was created in September 2017 and was a structured pledge on company's shares. The company's debt repayment schedule will begin from March 2020 and last till 2021-end, and promoters are hopeful of resolving the pledged shares issue in a quarter from now, it added.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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